News & Press

March 4, 2009

Mortgage Demand Falls Before Obama Rescue DetailReuters

Applications
for loans to buy U.S. homes and to refinance existing mortgages fell
for the second straight week, the Mortgage Bankers Association said on
Wednesday, as consumers awaited for specific details on President
Barack Obama's housing stimulus plan.

The
$275 billion program announced two weeks ago aims to reduce mortgage
rates and stem the record tide of foreclosures that has dragged home
prices down nearly 27 percent from their mid-2006 peak.

The
Mortgage Bankers Association's seasonally adjusted mortgage
applications index, made up of both purchase and refinance loans, fell
12.6 percent to 649.7 last week.

Potential
buyers and refinancers have pulled back in the hopes that Obama's
Homeowner Affordability and Stability Plan will cut borrowing costs and
steady house prices.

"The
housing stimulus package was announced but without sufficient detail to
cause the market to have comfort that it would work, and (a sense
about) when it would work," Michael Feder, chief executive at real
estate data and analytics company Radar Logic, told Reuters on Tuesday.

The
Mortgage Bankers Association's seasonally adjusted refinancing
applications index slumped 15.3 percent to 3,063.4, less than half the
level seen as recently as mid-January.

Its
purchase index dropped 5.6 percent to 236.4 last week, having steadily
descended from this year's high of 344.2 in the week ended Jan. 2.

An
unwillingness to buy a fast-depreciating asset, a supply glut and
swiftly evaporating jobs continue to contribute to the housing market
swoon, analysts agree.

"While
there is some demand from bargain hunters, housing conditions remain
quite dire," Barclays economist Michelle Meyer wrote on Tuesday after
the January National Association of Realtors pending home sales index
slid to its lowest level since the index was started in 2001.

AP

"Consumers
have lost confidence in the economy and are worried about job security,
discouraging big-ticket purchases," and tight credit conditions are
overshadowing relatively low mortgage rates, she added.

About 8.3 Million Mortgage Borrowers Are Underwater

One
in five U.S. homeowners with mortgages owe more to their lenders than
their homes are worth, and the rate will increase as housing prices
drop in states that have so far avoided the worst of the crisis, a new
study shows.

About
8.31 million properties had negative equity at the end of the year, up
9 percent from 7.63 million at the end of September, according to the
study released Wednesday by First American CoreLogic.

The percentage of "underwater" borrowers rose to 20 percent from 18 percent over that time.

The study covered 43 U.S. states and Washington, D.C.

While
states such as California, Florida and Nevada were particularly
stressed, the study showed worrying signs of deterioration in
relatively healthy parts of the nation.

"The
economic slowdown is broadening," said Sherrill Shaffer, a banking
professor at the University of Wyoming at Laramie and a former Federal
Reserve official. "As more people lose jobs, it will be more difficult
to sustain the levels of pricing and home ownership, and that is a big
factor driving down housing prices in more parts of the country."

Arizona,
California, Florida, Georgia, Michigan, Nevada and Ohio remained the
most stressed states, with 62 percent of underwater borrowers and just
41 percent of mortgages. Other areas, though, also face more stress.

Connecticut,
for example, saw a 25 percent increase in homes with negative equity,
while Washington D.C. had a 44 percent increase.

"Even
I continue to be surprised at the tentacles of this financial and
economic debacle," said Robert MacIntosh, chief economist at Eaton
Vance Management in Boston. "More people are being laid off, resulting
in reduced income and therefore less consumption. That leaves fewer
people with money to buy homes, and the mentality is that people
believe they should wait six months rather than buy now. Less demand
means falling prices."

Roughly 68 percent of U.S. adults own their own homes, and about two-thirds of these have mortgages.

Many
economists expect the nation's unemployment rate to rise above 9
percent before the recession ends, up from January's 7.6 percent.

California, Nevada Under Stress

California had 1.9 million borrowers with negative equity, more than any other state, followed by Florida's 1.28 million.

By other
measures, Nevada was the most stressed, with 55 percent of owners
having negative equity and borrowers on average owing 97 percent of
what their homes are worth. About 28 percent owe more than 125 percent
of their homes' value.

Michigan had 40 percent of its homeowners underwater, while Arizona had 32 percent.

New
York fared best, with just 4.7 percent of borrowers with negative
equity and an average 48 percent loan-to-value ratio, though this could
change as employment and bonuses slide in the financial services
industry.

According
to the S&P/Case-Shiller Home Price Indices, prices of U.S.
single-family homes slumped 18.5 percent in December from a year
earlier, the biggest drop in the 21-year history of the data.

Many lenders are taking steps to keep borrowers out of foreclosure.

The
Obama administration has backed legislation that could broaden powers
of bankruptcy judges to modify mortgages for troubled borrowers. Among
major lenders, only Citigroup has supported such a plan.